U.S. consumer spending advances for fourth consecutive month

COMMERCE DEPARTMENT STATISTICS showed that U.S. consumer spending increased 0.3 percent in July, the fourth monthly increase in a row. Pedestrians walk past an Apple store in Santa Monica, Calif. / BLOOMBERG NEWS PHOTO/PATRICK FALLON
COMMERCE DEPARTMENT STATISTICS showed that U.S. consumer spending increased 0.3 percent in July, the fourth monthly increase in a row. Pedestrians walk past an Apple store in Santa Monica, Calif. / BLOOMBERG NEWS PHOTO/PATRICK FALLON

WASHINGTON – Consumer spending advanced for a fourth month in a row in July, bolstered by stronger income gains, sending the biggest part of the U.S. economy to a solid third-quarter start, Commerce Department figures showed Monday in Washington.

Key points

Purchases climbed 0.3 percent (matching the median estimate) after a 0.5 percent rise that was revised upward. Incomes grew 0.4 percent (matching the median forecast) following a 0.3 percent advance that also was revised upward. The savings rate increased to 5.7 percent from 5.5 percent. Disposable income adjusted for inflation climbed 0.4 percent, the most this year.

Big picture

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The figures support economists’ projections that economic growth will rebound this quarter after the weakest first half since 2011. Adjusted for inflation, a 0.3 percent advance in July purchases followed an upwardly revised 0.4 percent gain in the previous month, indicating a better start to the third quarter. Ian Shepherdson at Pantheon Macroeconomics said in a note to clients that spending this quarter may rise 3 percent after a robust 4.4 percent second-quarter surge. A solid August jobs report would further boost expectations for Federal Reserve policy makers to raise interest rates as soon as next month.

Economist takeaways

“The consumer is going to remain the main driver of growth,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Ala., who correctly projected the rise in spending. “Continued improvement in the labor market is supporting income growth. It’s consistent with a solid third quarter.”

The details

Disposable income, or the money left over after taxes, increased 0.4 percent after adjusting for inflation, the largest gain in 2016. The price gauge based on the personal consumption expenditures index – the Fed’s preferred measure – was unchanged from the prior month and was 0.8 percent higher than a year earlier. The core price measure, which excludes food and fuel, rose 1.6 percent for a fifth month on a year-over-year basis. Purchases of durable goods, which include automobiles, increased 1.9 percent in July after adjusting for inflation, the biggest gain in three months. Spending on non-durable goods fell 0.1 percent, the first drop since February, while outlays on services rose 0.2 percent.

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